Two-Person Board Committees & Corporate Governance by Formula
A January 28, 2016 Wall Street Journal article entitled “Two-Person Board Panels Live On” questions whether such board committees are effective compared to board committees with three or more directors.
For many years, AABD has resisted the stampede toward a cookie cutter approach to corporate governance. Whether it is separating the Chairman/CEO role, having a separate Risk Committee, or setting the number of directors to serve on the board or a board committee, these are issues for the individual bank boards of directors to consider as part of their periodic corporate governance review, but unless legally required, they should not feel compelled to conform to the urgings of those who never set foot in their bank.
The WSJ article observes that Yahoo and NetFlix, among others, have two-person board committees. It further notes that 11 companies in the S&P 500 Index have such committees and that smaller companies also have two-person board committees, particularly the nominating and compensation committees. Proponents of small board committees contend that they are nimble, effective and efficient.
The article recites the opinion of Michael Wolf, co-founder of Activate, Inc.(a strategic consulting firm) and former Yahoo director, that “best board committees work well when there are three or more.”
The article notes that Glass Lewis, the proxy advisory firm, often urges voting against directors who serve on companies that have two person audit committees. NYSE and Nasdaq rules require listed companies to have at least three directors serving on the audit committee, but Glass Lewis also objects where the company is not listed on either exchange.
Glass Lewis and other proxy advisory firms as well as other corporate “gurus” have no choice but to apply a cookie cutter approach to corporate governance. They don’t attend your board of directors meetings.
Having at least three members of each board committee certainly is an idea that should be considered during your board’s periodic board and corporate governance assessments.
Consideration of a variety of practices that some believe to be “best practices” should be part of that periodic review. It doesn’t mean, however, that your board should adopt all or any of them unless legally required.
AABD does feel strongly that annual board assessments are important and that periodic outside, independent reviews are useful. AABD conducts outside board assessments.
In the field of corporate governance, one size does not fit all.
Learn more about AABD board assessment resources at the following links:
- Board Assessment Services Through AABD
- Board Evaluations – Self-Evaluation or Third Party Evaluation?
- Do’s and Don’ts of Board Evaluations
By David Baris, AABD President